When you are preapproved for a mortgage, a lender tells you what kind of loan you are eligible to take. The mortgage pre-qualification process gives you a rough estimate of how much money you could borrow from the lender. In addition to how much you are borrowing, lenders want to know how many years of mortgage funding are needed.
While every mortgage lender holds their own criteria regarding affordability, your ability to buy a house (and the size and terms of the loan you are offered) will always be determined mostly by the following factors. Many different factors go into mortgage lenders decisions about homebuyer affordability, but it comes down to income, debt, assets, and liabilities.
While DTI and the home price-to-income ratio are major factors in qualifying for a mortgage, there are also other things that affect the monthly mortgage payments and what you can afford. Once you have closed on a home loan, your monthly mortgage payment is likely the biggest single payment on debt that you will be making every month, so it is important that you are able to afford it. How much house you can afford is also dependent on what interest rate you receive, since a lower interest rate could dramatically reduce your monthly mortgage payments.
To get started, you can use our homebuyer calculator above to estimate how much house, closing costs, and monthly mortgage payments you can afford, all with annual income. You can calculate affordability by annual income, monthly debt, and down payment, or by estimated monthly payments and a down payment. Our down payment calculator helps you to see the costs and benefits of various down payment amounts, so you can decide which makes the most sense for you.
Once you input all of your information according to your chosen method, our home affordability calculator will tell you the maximum amount you could afford to buy a house, along with an estimated monthly payment. A mortgage affordability calculator, or a how much can I afford house calculator, can help buyers to see what those costs would add up to their monthly payment, and then factor it in as they determine how much they can afford to borrow. For most homebuyers, the problem is less about how much home can I afford and more about how much mortgage I can afford, since few homebuyers are able to buy their homes with cash outright, so a mortgage is going to be the number one factor that dictates the amount of house they can afford.
For example, if a potential homebuyer is able to afford 10% down for a $100,000 house, then their down payment is $10,000, meaning that homeowner would need to finance $90,00. Typically, lenders want to see DTI below 45%, and calculating this figure helps a lender determine what the borrower can afford to pay comfortably every month. The common requirement is that a monthly mortgage payment, including some of loan principal, interest, taxes, and insurance — sometimes called the PITI — should total less than 28 percent of the borrowers total income.
If you purchase a house worth $200,000 on a mortgage at 3.90 percent for 15 years, the monthly payment is $1,469.37 (not including taxes and insurance). This ratio says your monthly mortgage payments (which include property taxes and homeowners insurance) should not exceed 36% of your total monthly income, and your total monthly debts (including expected monthly mortgage payments and other debts, like car payments or student loans) should not exceed 43% of your pre-tax income. Most financial advisers agree that people should spend no more than 28 % of their gross monthly income on housing costs, and no more than 36 % on total debt–which includes housing, but also things such as student loans, car payments, and credit card payments.
While the Consumer Financial Protection Bureau (CFPB) reports that banks will approve mortgage amounts up to 43 percent of the borrowers monthly income, that is probably not the kind of debt you would want to assume. For borrowers, it is best to pay down as much existing debt as you can in order to qualify for the mortgage, and also in order to free up space to pay for your mortgage. The last thing you want to do is go for a 30-year mortgage that is too expensive for your budget, even if you are able to find a lender who will underwrite a mortgage.
It is important to be realistic about your monthly income and expected expenses so that you do not end up with a mortgage you cannot afford in the long term. Your housing budget will be determined partly by the length of your mortgage, so besides doing a thorough math on your existing expenses, it is important to have a solid understanding of the length of your mortgage, and to shop around among multiple lenders to find the best deal. This mortgage qualification calculator also gives you an overview of what your monthly mortgage payments would be, shows you what you would pay in mortgage interest every month and for the lifetime of the loan, and helps you understand how you could distribute the cash on hand up front to closing costs.
You can calculate your mortgage qualification by income, purchase price, or your total monthly payments. Interest rates are based on current market conditions, your credit score, your down payment, and the mortgage type you chose. Mortgage rates are determined by your lender, and they may be fixed or adjustable.
This includes the monthly principle and mortgage interest rates, the property taxes each year, and private mortgage insurance (PMI) payments. Income, down-payment, and monthly expenses are usually basic qualification factors for financing, whereas credit history and scores dictate interest rates for financing itself.
If $647 is your areas maximum conforming loan limit, and your loan is $600,000, then your mortgage could be sold in the secondary market as a conforming loan. If you have a partner, and you earn $120,000 together, you could easily stretch the loan to $360,000. If your annual income is $60,000, you should think twice about taking on more than $180,000 in mortgage.